The physical form of money includes precious metals and even paper currencies. The production them are constraint by the natural resources in the former case, and by the law in the latter case.
The Printing is different. All major commercial and investment banks have accounts with the Federal Reserve. If Fed wants to inject money into the system, i.e. printing, it only need to book a debit of $200 billion on its own book, and a credit of $200 billion on the banks books. That is it.
Will Fed ever hike the rate? The market has been talking about this for more than two years. It might never happen because a major global market is going to happen.
The answer could depend on what we can perceive.
Over the years, the Federal Reserve has printed trillions of dollars and pump them into the financial system. Then the investors, such as banks, private, institutional investors invested these phantasy cash all over the world. Every time the level of uncertainty rises in the financial market. many of such investors automatically pull money out of their investment overseas and bring them back to US for "safety".
So if the US dollar becomes weak, then all the market players need to do is to create chaos and uncertainty in the global geopolitical space and financial space.
So if the Fed starts to raise Fed Funds rate in the middle of 2015, then it would take about ten consecutive hike of 25 bps in each meeting.
If this is true, then the financial market should discount this project quickly into the bond prices and stock prices.
The oil price might continue its trend of decline given the nature of cash settlement of commodity future trading.
The intrinsic value of oil is probably in the single digit. Here is why:
"Alchemical Manual for this Millennium Vol 1 and 2" by Aity Olson
This book can be downloaded online for free.
he point is that the energy is what propels the physical world and is all around us. We were told that the electrons are spinning at speed close to the speed of light, but were not told where the energy comes from to make the numerous spinning possible?
Is this sell-off done?
Well, you can decide for yourself. Tens of billions of pay-off from the hundreds of billions of financial derivatives tied to oil prices would need to be settled. The portfolio managers need to liquidate positions.
And again, there is the risk of counterparty default, which might trigger systemic breakdown.
We have not seen the financial panic in the stock market yet. Will it be here before the New Year or after New Year? It is anybody's guess.
JPM has penetrated 50-day SMA line with average volume. I wonder whether the 100-day and 200-day SMAs will be penetrated with huge volumes someday in the future. :-))
If the oil price continue to fall, hundreds of billions worth of financial derivative might require pay-off. If some entities with concentrated losing position, like in the case of AIG, resort to default, then the financial system might experience severe shocks.
Think of commodity futures and derivatives tied to commodity futures.
Think of sovereign and corporate Credit Default Swap on those oil producing nations and corporations.
Think of sovereign and corporate CDS on national and corporation heavily dependent on the formers.
Think of the massive pay-off required once US, Japan, EU fall into deflationary spiral.
It is not just oil commodity futures, but the Sovereign and corporate CDS on the oil producing countries and companies. Then CDS on the sovereign and corporate which ties to those nations and companies.
Do not forget the resulted deflation in US, Japan and EU. And the massive interest-rate-swap pay-off involved.
If the oil price continue to fall, how do you know that the losing trades would not be concentrated onto a handful major players, like in AIG case?
What if some of the counterparties default? Will we see a chain effect of defaulting, without "bail-out".
The knowledge will come out to the public domain and enter into public consciousness. Then we would see $5 oil price and some "up and down" in the global financial system, given all the massive amount opaque derivative bets tied to the oil prices and the debt rating of the carbon energy companies and sovereign nations.
Total global investment in carbon energy is estimated to be about $200 trillion, with at least $20 trillion return on investment and tax revenue created annually. When most of such cashflow disappear, the global economy would experience period of extreme volatility. Maybe only a RESET can solve the problem
Those astronomical numbers are just notional values. The actual cash flow involved might be only 5 to 10% of the notional, if not less.
In a perfect world where all these bets are evenly distributed, the net risk will be close to zero. But we are living in a imperfect world, and sometimes the risk could be extremely concentrated into the hands of a handful players, as in AIG case.
The biggest risk to these unregulated financial bets is the counter-party risk. If a LOSER could not pay off the losing side of the contracts and default, then the perfectly hedged chain bets will be exposed. Then large amount of such unhedged bets could lead to financial systemic risk.
The total global investment in carbon energy is estimated to be around $200 trillion. That means tens of trillions annual profits, tax revenue, and other income for various entities.
With the implementation of new concept and new technologies, most of the revenue and receipt will evaporate.
Those financial products are mostly traded OTC ( over the counter) so that the aggregate statistics on those trades are not available. The latest figure I heard is about $50 trillion notional values including all the derivative products such as interest rate swap, CDS, options, equity-linked-notes, CDO, CLO, etc.
However, the net risk of those contracts depends on how concentrated the losing trades. Do you recall AIG, which had more than $100 billion loss from its subprime CDO contracts?